The blue chip FTSE 100 <.FTSE> index closed 0.1 percent lower at 7,263.90 points, underperforming a positive European market which was boosted by gains among banking stocks.

British banks <.FTNMX8350> were among the strongest gainers, with Lloyds (>> Lloyds Banking Group), Barclays (>> Barclays) and Royal Bank of Scotland (>> Royal Bank of Scotland Group) all up between 1.6 percent to 2.6 percent.

Banks have struggled with low interest rates, which has put pressure on their margins. The sector was boosted recently by more hawkish rhetoric from the Bank of England, which said that a rate rise was likely in coming months.

"The prospect of higher rates in the key US market, and indeed even the possibility of a modest rate rise in the UK, has prompted investors to buy up financial services stocks in hope of better margins and improved profits and dividends", Chris Beauchamp, chief market analyst at IG said in a note to clients.

Increased expectations of a Fed rate hike boosted the dollar, which in turn weighed on greenback-denominated commodities including copper and gold.

Shares in precious metals miners Antofagasta (>> Antofagasta), Randgold Resources (>> Randgold Resources) and Fresnillo (>> Fresnillo) and were all down about 2.3 percent.

Households goods and retailers sustained heavy losses as worries for British consumers mount: Kingfisher (>> Kingfisher) and Sainsbury (>> J Sainsbury) were both down 4.1 percent.

Outsourcer Capita (>> Capita) was the worst performer in the pan-European STOXX 600 <.STOXX> with an 11.6 percent fall after disappointing first half results.

Johnson Matthey (>> Johnson Matthey PLC) posted the best performance with a 14.6 percent rise after confirming guidance for the year and announcing a 200 million pounds investment to capitalise on growth in the electric vehicle market.

Deal-making spurred a 2.4 percent jump in CRH's shares. The building materials maker rose after agreeing to buy U.S. cement maker Ash Grove Cement Co (>> Ash Grove Cement Co) in a $3.5 billion (£2.59 billion) deal to expand in North America.

"We think the transaction marks a strategic entry into the U.S. cement market at a reasonable price, where CRH currently only has a small presence and will complement its significant aggregates, asphalt and ready mix operations," analysts at UBS said in a note.

(Reporting by Kit Rees and Julien Ponthus; Editing by Toby Chopra and John Stonestreet)

By Kit Rees